What the Babbl Team is Reading…
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We’re back with another installment of What We’re Reading, where it’s our job to give you direct access to all the interesting things our team digs up that don’t make it into our other publications. And this one’s a doozy. We’ve got nuclear material prices headed for a squeeze, strategic projections for the rest of the year, and some quick bites that may warrant some further research. As always, let us know what you like and where we should look next by replying to this email or tweeting at us @babbldev. Be sure to give our mentioned authors some love as well. Onward!
The story is so strange here that I couldn’t even think of a catty section title, so strap in. Ever since the Fukushima nuclear meltdown in 2011, uranium has been nearly uninvestable to institutions. Uranium futures prices peaked in 2011 above $70 and decayed below $18 by late 2016 . Prices hover slightly upward for the next 4 years, entering 2021 around $30. Now, things get interesting. An important note on Uranium production and use brought to you by Kuppy at AdventuresInCapitalism:
“… let’s use some VERY broad numbers. The world is producing roughly 125 million pounds from primary mining, 25 million pounds from secondary sources and consuming roughly 180 million pounds, for an overall deficit of 30 million pounds a year.”
“… almost everyone who owns uranium today, owns it because they intend to consume it in their reactors […]. In a market with a deficit, they’re all implicitly short uranium. With an entity buying up the free float, they’re going to get squeezed. We all know how squeezes work, but I don’t know of any similar scenario where the squeeze was as aggressive or blatant.
The utilities are blissfully unaware, they’re eventually going to panic and pay any price for uranium as a reactor that runs out of uranium is just an expensive paperweight.”
That’s right folks, ever since April of 2021, a buyer has come out of the woodwork to buy every last piece of uranium they can get their hands on in a market with a desperate demand, and that buyer is Sprott Physical Trust.
And they’re … Canadian?
As of today, the fund owns over 32 million pounds of uranium and is buying at a pace that tracks the entire yearly production. I’ll leave you with closing thoughts from Doomberg in Is Uranium About to Go Nuclear?:
“… this will soon undoubtedly become one of the most interesting and talked about stories in the financial world, if it isn’t already. The situation is truly unprecedented. Given the critical nature of the commodity being cornered, I wouldn’t be shocked if governments eventually intervene…”
 - For anyone keeping score at home, that means the price of uranium had a half-life of about 2.83yr, as opposed to uranium itself, which has a half-life of about 4.5 billion years.
It’s been a weird year for growth stocks. $ARKK is down 6.9% on the year, and over 25% off its February peak. I/O Fund writer and Portfolio Manager, Knox Ridley, shows us in his Oct. 7th analysis why the fund believes select names in Big Tech will end the year strong from here. A bit from Sentiment Puts a Floor Under this Dip:
“Note the pattern in 2020 – as the indexes makes a new high, the % of stocks above their 200-Day MA makes a lower high. This was a warning that the markets were weakening under the hood. Starting in March of this year the same divergence began, and is still playing out right now.”
So we see that select names are showing strength and putting the S&P on their backs, so to say. And as market indexes don’t select for these strong performers, the sentiment seems bearish:
“Note the pattern going into the February bear market. As realized volatility was actually increasing, investors couldn’t buy enough calls compared to puts. […]
Compare that pattern to today. We are seeing the opposite unfold – as realized volatility continues to trend down, investors are buying more puts. This is signaling that sentiment is rather bearish to cautious as the market continues to climb higher in a low volatility environment.”
Investors appear worried and are working to cover their downside risk. So, even while October to year’s end is historically strong, Knox encourages you to be especially selective.
“When you note seasonal trends and historic patterns, coupled with an unusual amount of negative sentiment and the recent relative strength in economically sensitive sectors, we believe a similar trend will unfold into year-end. For this reason, we have been accumulating high conviction names that are showing excellent relative strength. Many of these names are embedded in strong tech microtrends that we anticipate to continue into the foreseeable future.”
Knox Ridley [Twitter]
Ondas making moves
Ondas ($ONDS) is an interesting company at a very early stage (i.e. high risk), working on providing secure private broadband internet primarily for infrastructure companies. Seems to me like a field in need of some disruption, I’m curious to see if they’re the ones to do it.
Do you need a safety $NET?
Cloudflare ($NET) has only known one direction over the last year, and that direction is 🚀.
Without overwhelming evidence for why we’re headed for $170, bag holders are starting to get nervous:
Thanks for being here y’all! Hope everyone is able to find something they like. I have a lot of fun writing these, and any feedback or content recommendations are encouraged.
In other news, we’re getting dangerously close to finishing our sentiment analysis platform and tools, and just started adding beta testers to the site. To get in on that sweet sweet early access discount, sign up for the waitlist! You’ll have analysis of all these sources and many more at your finger tips.
Thank you for reading, and until next time, may your charts all be headed up and to the right.
The author has positions in some companies in the uranium space, as well as Ondas and Cloudflare. None of the contents here are investment advice and are provided for informational purposes.